News

Brisbane’s city skyline is peppered with cranes giving rise to a perception of a booming construction market. And it’s true – but it’s emphatically weighted in favour of the residential sector with big unit complexes going up in the CBD and inner city locations.

There has been ongoing speculation about the strength of the residential market and the potential for a bursting of the development bubble – however, more cranes seem to be appearing than coming down. The largest concern for developers is the availability of funding with major banks effectively shutting off finance to the construction sector. This has impacted DA-approved sites with many being put back to market as developers find themselves unable to secure funding to progress planned developments. There’s also significant financial pressure on builders with some smaller to mid-tier firms struggling to complete larger jobs that had likely been under-quoted in the tendering process. The impact of that competitiveness to win work has now started to impact their cash flow as the real cost of construction reveals itself.

On the plus side of the ledger, construction continues on two major office buildings that will reach practical completion in 2016 following the recent opening of the 180 Brisbane office tower. Completion of 480 Queen Street and 1 William Street is scheduled this year, adding around 192,000 square metres to the premium market in the CBD. This will continue pressure on incentives and rental levels over the next 12 months -particularly in the A grade segment. The 180 Brisbane development has secured the Commonwealth Bank as an anchor tenant and the Tatt’s Group has also leased 18,000 square metres, but the development will still add over 25,000 square metres of vacant direct lease space to the market. 480 Queen Street will open with between 10,000 and 15,000 square metres vacant. 1 William Street is under a head lease commitment from the Queensland government.

Whilst these buildings have some pre-commitments, they will also create very large backfill space as tenants relocate from existing buildings into these new developments. The only other potential office developments to start within the next two years are the Shayher Group’s 300 George Street where construction has started on a hotel and a proposed commercial tower could follow. There’s also ISPT’s proposed Regent office development which has re-emerged as a scaled down possibility of around 35,000 square metres. It is unlikely these projects will start anytime soon as the current leasing economics to feasibly develop a tower just aren’t there. As more projects are finished and potentially fewer starts to be seen, there could be further downward pressure on construction costs. It’s going to be a long waiting game.

The political tsunamis generated by the UK’s Brexit and the election of President Donald Trump have flooded through into the corporate world and focused the discussions of global commercial property leaders at the bi-annual ITRA conference in Paris recently.